Market Commentary July 2026

UK

Sir Keir Starmer bowed to sustained pressure from his own party to step down, announcing that he would leave once a new party leader was found, following Monday 22nd June. It appears almost certain that he will not return to Downing Street when Parliament returns in September, and the transition may happen sooner.

With Labour Party nominations due to open on 9th July and close on 16th July, Andy Burnham was the only candidate confirmed as certain to stand. Other names were mentioned as considering a bid to force a public policy debate, but there was a strong chance Burnham would walk into Number 10 unopposed within a matter of days.

There is little doubt that he possesses stronger communication skills than his predecessor, and an orderly transition would cause less political damage to Labour than the Conservatives suffered with the departures of Johnson and Truss. However, Burnham had not been required to set out clear policies to that point, which caused some unrest. He is viewed by many as more left-leaning than Starmer, and as someone who may not adhere to Labour’s election manifesto. His earlier experience is sometimes forgotten: he served in Tony Blair and Gordon Brown’s government, holding Cabinet posts as Health Secretary, Culture Secretary and Chief Secretary to the Treasury, and twice ran unsuccessfully for the Labour leadership. Regarded as a Blairite in Cabinet, he was closely associated with the expansion of the Private Finance Initiative (PFI), which funded significant NHS spending through a consortium of private-sector banks and construction firms. PFI debt is viewed by many commentators as poor value for taxpayers, and this may be used against him, although the scheme was created under John Major and continued under George Osborne.

His speech on 29th June set out a ten-point plan and was his most considered attempt yet to articulate a vision for the UK. It prioritised politics over economics, but he confirmed that he would keep to Labour’s manifesto pledges and to Rachel Reeves’ fiscal rules. On the surface there was something for everyone: regional devolution and a smaller central government, more housing, jobs for young people, nationalising some key public services, and closing the door to rejoining the EU for now, all without increasing income tax, National Insurance or VAT. While much of the media attention focused on a partial relocation of government to Manchester, many observers were more concerned about how these policies would be funded.

Burnham is widely understood to believe that the UK overtaxes work but undertaxes wealth. This is likely to put Capital Gains Tax back in the spotlight, and pensions and property may again be the subject of the usual pre-Budget speculation. Rachel Reeves would be replaced under Burnham, with Wes Streeting a possible successor. Streeting moved quickly behind Burnham’s campaign rather than running his own, suggesting a deal may have been struck. He is regarded as being on the right of the Labour Party and can point to reduced NHS waiting lists as evidence of some short-term success, although the long-term results are not yet proven.

Agreeing to abide by the Chancellor’s fiscal rules and appointing a centrist Chancellor would go some way to reassuring the bond markets Burnham claims not to fear. UK equity markets were relatively untroubled by the news. It was not a major surprise, and Starmer’s decision to step down avoided a protracted period of instability. The US-Iran peace deal, however brittle, also spread optimism through equity markets, including in the UK. Bond yields rose briefly on the leadership news but not to an extent that suggested a clear link between Burnham and “bond vigilantism” at this stage. Markets will continue to watch him closely.

The Bank of England’s Monetary Policy Committee held the bank rate at 3.75% on 18th June in a 7–2 vote, with two members preferring an immediate rise to 4.00%. UK CPI held at 2.8%, but services inflation rose to 3.7%. The Committee’s next meeting is on 30th July, and a possible hike remains live.

United States

US equities finished the first half of 2026 on a positive note. The S&P 500 closed above 7,600 for the first time on 2nd June. The Nasdaq Composite and the Dow also set fresh highs, as semiconductor and artificial intelligence names continued to lead. The major swings within the three main equity indices were largely driven by the conflict in Iran and by concerns about the long-term viability of AI spending.

June’s standout event was Space Exploration Technologies’ (SpaceX) initial public offering on 12th June, the largest in stock market history. Priced at $135 a share, the offering raised around $75–86bn and closed its first day up almost 20%, valuing the company above $2 trillion and making Elon Musk the world’s first trillionaire. The deal followed SpaceX’s earlier acquisition of xAI, and much of the investment case rests on the build-out of AI infrastructure and compute, including new cloud-computing agreements with Anthropic and Google. Some analysts, including Cape Fear Advisors and Morningstar, flagged the valuation as stretched, and lock-up expiries later in the year will be watched closely. The debut is widely seen as a bellwether for further AI-linked listings, and both Anthropic and OpenAI signalled an intention to float at some future date.

Kevin Warsh held his first meeting as Federal Reserve Chair on 16th–17th June. The Federal Open Market Committee voted 12–0 to hold the federal funds rate at 3.50%–3.75% for a fourth consecutive meeting, but the accompanying “dot plot” turned notably hawkish: the median 2026 year-end projection rose to 3.8% from 3.4% in March, with nine of eighteen participants now pencilling in at least one rate rise this year and seventeen seeing inflation risks skewed to the upside. Warsh shortened and simplified the post-meeting statement and stripped out language that had signalled an easing bias. Markets moved to price a possible hike as soon as October. The Committee cited elevated uncertainty tied to the Middle East conflict and pointed to energy-driven price pressures as a key reason inflation has proved stickier than expected.

The US and Iran took a significant step towards de-escalation in June, signing the Islamabad Memorandum, which extended the ceasefire and set out plans to reopen the Strait of Hormuz. Implementation has been uneven, however, with later incidents around the strait and fresh exchanges of strikes showing that the situation remains fragile. The agreement leaves Iran’s nuclear programme to further negotiation and does not fully resolve wider regional tensions. Shipping through the Strait of Hormuz has resumed only gradually and remains vulnerable to renewed disruption, so investors should treat the improvement in energy-market sentiment as tentative rather than settled.

Europe

The European Central Bank delivered its first rate rise since 2023 at its 11th June meeting, raising all three key rates by 25 basis points. The deposit facility rate is now 2.25%. President Lagarde described the move as “robust across a range of scenarios,” explicitly linking the decision to inflation pressure generated by the Middle East conflict. She stopped short of committing to further increases, though markets are pricing more than a 50% chance of another hike in September, according to LSEG data.

Eurozone Harmonised Index of Consumer Prices (HICP) inflation nonetheless fell further than expected in June, according to figures released on 1st July. Overall inflation cooled to 2.8% for June, down from 3.2% in May. While this will temper enthusiasm for further hikes for now, many commentators do not believe the second-round effects of the energy crisis, fertiliser shortages and the recent heatwave on food crops have yet fed through. As the energy crisis eases, economists remain braced for the medium-term consequences for price inflation.

Eurozone business surveys pointed to a fragile but slowly improving picture. The flash Composite Purchasing Managers’ Index rose to 49.5 in June from 48.5 in May, still below the 50 growth threshold for a third straight month. Services activity contracted at a slower pace and manufacturing eased to 51.4. Notably, most June survey responses were collected before the 17th June US-Iran signing, so the improvement does not yet capture the potential benefit of de-escalation. Much will depend on whether peace in the Middle East proves durable, whether energy prices remain contained, and whether food-supply pressures ease faster than economists currently expect.

Far East

The Bank of Japan raised its policy rate to 1.0% in mid-June, its highest level since 1995, delivered with a hawkish 7–1 committee split. The Nikkei 225 absorbed the move well, extending its remarkable 2026 run: the index broke through 70,000 for the first time in its history in mid-June before consolidating into month-end. The Nikkei and Topix posted gains for a third consecutive month. Support came from AI- and semiconductor-related demand, a weaker yen aiding exporters, confidence in Prime Minister Sanae Takaichi’s growth-focused fiscal agenda, and easing oil prices as US-Iran talks progressed.

China’s economy picked up in June, according to the China Beige Book, an independent survey of Chinese businesses, which showed factory activity accelerating and US exports rising, although this may reflect a front-loaded rush ahead of future tariff increases. On Taiwan and technology controls, Beijing held its position. Notably, SpaceX’s underwriters barred Hong Kong and mainland Chinese investors from participating in its IPO on export-control and regulatory grounds, an illustration of how the broader technology rivalry continues to run alongside the diplomatic engagement seen since the Trump-Xi summit in May.

Emerging markets

Emerging-market performance in June continued to be dominated by North Asia’s role in the AI supply chain. Taiwan and South Korea have both grown to overtake China as the largest single-country weights in the MSCI Emerging Markets Index, with Korea’s KOSPI hitting a string of record highs on the back of Samsung and SK Hynix earnings tied to AI memory demand, and Taiwan supported by TSMC’s dominance in advanced chip manufacturing. Together, Taiwan and Korea now account for over half the index by weight, a striking reversal from China’s near 40% share as recently as 2021. Taiwan was first to overtake China in April, with South Korea following at the turn of June. The flip side is volatility: June also saw swings on sell-offs in key stocks such as SK Hynix and Samsung.

India continued to lag the broader emerging-market complex, weighed down by a weaker rupee, its position as a net energy importer, and investor concern that AI and automation are eroding its traditional low-cost labour advantage in IT services. The Reserve Bank of India warned that it remains highly vulnerable. Despite this, India’s underlying economic growth remains among the fastest of any major emerging-market economy. Indonesia, whose difficulties we have noted before, retained its emerging-market status for now, after index provider MSCI extended its review to November to assess measures rolled out by the government. This may help Indonesia, but it also prolongs the uncertainty for investors.

Summary

June brought the clearest signal yet that the major central banks have shifted from a growth-focused, easing stance to active vigilance against energy-driven inflation. The ECB hiked for the first time since 2023. The Bank of Japan pushed rates to a three-decade high. In Kevin Warsh’s first meeting as Chair, the Fed held rates but signalled that hikes are now more likely than cuts this year. The Bank of England also held, but could raise rates in late July.

The signing of the Islamabad Memorandum between the US and Iran marked a genuine, if incomplete, turning point. The planned reopening of the Strait of Hormuz and removal of the US naval blockade helped ease the acute phase of the energy shock, and equity markets have continued to look through some geopolitical risk. But implementation remains contested, with further incidents in and around the strait and renewed regional tensions reminding investors that the path to durable peace is unlikely to be smooth. Even a lasting de-escalation may take time to unwind the damage done to global energy and shipping markets, and central banks look set to remain in a defensive, inflation-focused posture for now.